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Gourio, François - C.E.P.R. Discussion Papers - 2011

disaster. This simple feature generates large, volatile and countercyclical credit spreads as well as novel business cycle … implications. An increase in disaster risk makes default more systematic, leading to higher risk premia, and higher expected …. Financial frictions amplify significantly the effects of disaster risk: the response of investment and output is about three …

Persistent link: https://www.econbiz.de/10008854475

On the Consequences of State Dependent Preferences for the Pricing of Financial Assets

Danthine, Jean-Pierre; Donaldson, John B; Giannikos, Chrisos - C.E.P.R. Discussion Papers - 2003

This Paper introduces state dependent utility into the standard Mehra and Prescott (1985) economy by allowing the representative agent’s coefficient of relative risk aversion to vary with the underlying economy’s growth rate. Existence of equilibrium is proved and its asymptotic properties...

Persistent link: https://www.econbiz.de/10005497824

Explaining The Equity Risk Premium

Lungu, Laurian; Minford, Patrick - C.E.P.R. Discussion Papers - 2005

We develop a simple overlapping generations model in which the young have a choice in investing in equities and index-linked bonds. Projections of share price uncertainty over a 30-year period show that the risk associated with such a long-term investment predicts an equity premium that matches...

Persistent link: https://www.econbiz.de/10005667120

Valuation Risk and Asset Pricing

Albuquerque, Rui; Eichenbaum, Martin; Rebelo, Sérgio - C.E.P.R. Discussion Papers - 2012

Standard representative-agent models have difficulty in accounting for the weak correlation between stock returns and measurable fundamentals, such as consumption and output growth. This failing underlies virtually all modern asset-pricing puzzles. The correlation puzzle arises because these...

Persistent link: https://www.econbiz.de/10011083589

Using Subjective Income Expectations to Test for Excess Sensitivity of Consumption to Predicted Income Growth

Jappelli, Tullio; Pistaferri, Luigi - C.E.P.R. Discussion Papers - 1997

We test for excess sensitivity of consumption to predicted income growth using a 1989–93 panel survey of Italian households that includes measures of subjective income and inflation expectations. These expectations provide a powerful instrument for predicting income growth. Controlling for the...

Persistent link: https://www.econbiz.de/10005504275

What Determines Earnings and Employment Risk

Guiso, Luigi; Jappelli, Tullio; Pistaferri, Luigi - C.E.P.R. Discussion Papers - 1998

Expectations and riskiness of future earnings are crucial determinants of individuals' intertemporal choices. Yet, the empirical literature lacks reliable measures of the distribution of future income. Lacking direct observability, the latter is usually estimated inferring the mean, the variance...

Persistent link: https://www.econbiz.de/10005504470

Pill, Patch or Shot? Subjective Expectations and Birth Control Choice

Delavande, Adeline - C.E.P.R. Discussion Papers - 2005

When choosing a contraception method, women base their decisions on their subjective expectations about the realizations of method-related outcomes. Examples of such outcomes include getting pregnant, contracting a sexually transmitted disease (STD) or experiencing side effects. By conducting a...

Persistent link: https://www.econbiz.de/10005791196

Anticipated and Unanticipated Wage Changes, Wage Risk, and Intertemporal Labour Supply

Pistaferri, Luigi - C.E.P.R. Discussion Papers - 2002

We address the question of how labour supply responds to anticipated wage growth, unanticipated wage growth, and wage risk. We use the 1989-93 panel section of the Bank of Italy SHIW, which collects individual-based quantitative expectation of future wage growth. The use of subjective...

Persistent link: https://www.econbiz.de/10005791984

Sources of entropy in representative agent models

Backus, David; Chernov, Mikhail; Zin, Stanley E. - C.E.P.R. Discussion Papers - 2011

We propose two metrics for asset pricing models and apply them to representative agent models with recursive preferences, habits, and jumps. The metrics describe the pricing kernel’s dispersion (the entropy of the title) and dynamics (time dependence, a measure of how entropy varies over...

Persistent link: https://www.econbiz.de/10009225955

Inattention to Rare Events

Mackowiak, Bartosz Adam; Wiederholt, Mirko - C.E.P.R. Discussion Papers - 2011

Why were people so unprepared for the global financial crisis, the European debt crisis, and the Fukushima nuclear accident? To address this question, we study a model in which agents make state-contingent plans - think about actions in different contingencies - subject to the constraint that...

Persistent link: https://www.econbiz.de/10009351517